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sir
I have some question on the JUNE 11 and DEC 11 papers
1. on the JUNE 11 in the question 1, part(iii). my calculation process is: 189169/100*=94584,this would be liability after combination, then before acquisition Co Purist has 70m liability amount. So the difference is 94584-70000=24584, this figure concludes the Fodder’s liability and the amount raised. so I use 24584 deduct the Fodder’s liability, which would be 24584-4009.5=20474.5.then deducted the cash reserve 20m get the final number. I do not know what’s wrong with this logical process?
2. in the question, there is an sentence: Pursuit Co estimate that a payment of the equity value plus a 25% premium would be sufficient to secure the purchase the Fodder Co. what dose it mean for this sentence? why just use equity *25%, not 125%?
3. for the second question, in the part (c) why the answer use 128 not 116? also in the part (b), why the answer use 116?
a little bit more, thanks ahead1 You are ignoring the fact that Fodor has to also pay a premium to Pursuit’s shareholders and also that they want to keep the gearing ratio the same as at present.
2 The premium (extra) is 25% * the equity value, so the total amount will be 125% x equity value.
3 I am confused about which question you are referring to here because you start my mentioning June 11 and December 11!! I assume you are referring to June 11 Question 2?
In part (b) they are using euros to buy MShs and so they will use the lower rate of 116
In part (c) they will be converting MShs into euros and so will use the higher rate of 128yes , all the question I asked in the JUNE 6 papers.
the Q1. I know, we should consider the premium. I think for the part (i),I just do not understand why the answer said premium is 36086000*25%, not equity value *125%? how much of the purchasing price? is that equity value*125%?
2. for the second Q, my understanding about why using 128 is they will receive 1.5 billion MShs, but the company is European company, so when they receive MShs, they should sell it. so we should use the buyer rate? is that right?
thanksJUNE 11: also i have another question is about fourth Q. i do not understand why the time line in the answer is current 1 2 3 4 5 6
(7) (7) (35) 25 18 10 5 ?
my calculation is current 1 2 3 4 5
(7) (7) (35)+25 18 10 5
because the question said the 35m for production and distribution costs at the start of the four-years sales period of the game. how to understand this one?
2. in DEC 11 Q 1, at the page of 16. the answer process the W5. how to get the number of 38470? and I think that in the second year, the taxable profit should be 7 not 0?
thanks!Time 0 is now – the start of the first year
Time 1 is one year from now – the end of the first year/start of the second year
Time 2 is two years from now – the end of the second year/start of the third year.
Please start a new thread for your second question. We cannot be free ‘private tutors’ and our answers are to try and help everyone, which is why separate questions must be on new threads.
Hi John,
In pursuit question when calculating combined co cash flow and value computation, why is wacc calculated for discounting? Shouldn’t the discount rate be 13.26% (ke= 4.5%+1.46*6%=13.26%)?We always discount the free cash flows as the WACC (just as in investment appraisal questions we discount the cash flows at the WACC).
Your discount rate of 13.26% is the cost of equity, and we only discount at the cost of equity if we are looking at the free cash flows to equity, which are after interest (in order to get a market value only of equity).
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